Trading update and NAV release
06/02/2023 07:00
To: Company Announcements
Date: 6 February 2023
Company: Balanced Commercial Property Trust Limited
LEI: 213800A2B1H4ULF3K397
Subject: Unaudited NAV release for Balanced Commercial
Property Trust Ltd (the "Company” or “BCPT”)
Headlines
* Net Asset Value total return of -14.3 per cent for the quarter ended 31
December 2022 (YTD total return -9.2 per cent)
* Share Price total return of +11.9 per cent for the quarter ended 31 December
2022 (YTD total return -11.7 per cent)
* Portfolio capital value decrease of 11.9 per cent over the quarter on a
like-for-like basis, driven by market yield movement
* Successful asset management initiatives during the quarter resulting in the
retail warehousing portfolio being fully let
* Three monthly dividends of 0.4 pence per share, equating to an annual
dividend yield of 5.3 per cent based on 31 December 2022 share price
* Rent collection for Q4 2022 of 98.7 per cent, with annual collection for
2022 of 98.9 per cent stabilised at pre-pandemic levels
Net Asset Value
The unaudited net asset value (‘NAV’) per share of the Company as at 31
December 2022 was 118.5 pence. This represents a decrease of 15.1 per cent
from the unaudited NAV per share as at 30 September 2022 of 139.6 pence and a
NAV total return for the quarter of -14.3 per cent.
The NAV has been calculated under International Financial Reporting Standards
(‘IFRS’). It is based on the external valuation of the Company’s
property portfolio which has been prepared by CBRE Limited.
The NAV includes all income to 31 December 2022 and is calculated after
deduction of all dividends paid prior to that date. The EPRA Net Tangible
Assets (NTA) per share as at 31 December 2022, which is adjusted to remove the
fair value of the interest rate swap, was 118.4 pence per share.
Analysis of Movement in NAV
The following table provides an analysis of the movement in the unaudited NAV
per share for the period from 30 September 2022 to 31 December 2022 (including
the effect of gearing):
£m Pence per share % of opening NAV per share
NAV as at 30 September 2022 979.2 139.6
Unrealised decrease in valuation of property portfolio (148.2) (21.1) (15.1)
Movement in fair value of interest rate swap (0.7) (0.1) (0.1)
Other net revenue 9.6 1.3 1.0
Dividends paid (8.4) (1.2) (0.9)
NAV as at 31 December 2022 831.5 118.5 (15.1)
Valuation
The capital value of the Company’s portfolio fell by 11.9 per cent over the
quarter, as the UK real estate market experienced rapid repricing in the face
of economic and market pressures. The markets were particularly turbulent
during October and November with the downward pressure on valuations slowing
in December. The MSCI UK Monthly Index capital value by comparison decreased
by 15.6 per cent over the quarter. The relative outperformance is related to
the large predominantly retail holding at St. Christopher’s Place and
demonstrates the value and attributes of a balanced portfolio as the market
corrects in this stage of the cycle.
The current inflationary environment has seen steady increases in the Bank of
England base rate which is now at 4 per cent, and significant yield expansion
in the gilt markets, in turn resulting in pressure on capitalisation rates in
the real estate sector. In this context, investor caution has resulted in a
period of illiquidity and price discovery, causing a rapid re-rating of market
values.
The early stages of 2023 have seen an improvement in sentiment as investment
activity has picked up and pricing for core assets within the industrial,
retail warehousing and student sub-markets in particular have begun to show
initial signs of stabilisation. Furthermore, occupational markets have
remained resilient, as evidenced by the reduction in the portfolio void rate
from 6.4 per cent to 5.9 per cent by estimated rental value.
Portfolio
Against such a background, the Company’s industrial and logistics assets saw
a decline in value of 18.0 per cent, as the equivalent yield on the portfolio
assets moved out by 117 basis points. This yield correction comes despite the
sector’s strong occupational market, which remains characterised by a
supply-demand imbalance that continues to generate rental growth. The quarter
saw the letting of Unit 2 Mason Road at the Cowdray Centre in Colchester to UK
Plumbing Supplies on a new 15-year lease at a rent that shows a steady
increase in the estate’s rental tone. The letting was concluded following a
substantial refurbishment which significantly enhanced the unit’s ESG
credentials, including a B-rated EPC, and similar works are being rolled out
across the estate.
St Christopher’s Place in London, the portfolio’s largest holding, fell in
value by 1.0 per cent. This prime, mixed-use holding has been in a recovery
phase throughout 2022 as evidenced by a strong festive period where footfall
in the last two weeks of the year was in excess of the same period in 2019.
The capital value of the Company’s prime retail warehouse parks in Newbury
and Solihull fell by 13.8 per cent, driven by an 84 basis point outward
movement in the equivalent yield. Footfall and occupational activity on both
parks remain resilient. Sears Retail Park in Solihull is now fully occupied
following the Q4 openings of Pure Gym and Mountain Warehouse. All vacant space
at Newbury Retail Park is now conditionally contracted, with a letting to JD
Sports having completed and works underway to hand a unit over to Cancer
Research.
The Burma Road Student Village in Winchester saw a 16.0 per cent fall in
valuation. While the student housing asset class retains strong fundamentals
based on both demographic and economic trends, the asset’s long-term,
index-linked leasing structure was particularly correlated to the gilt markets
and the equivalent yield on the asset was moved out by 72 basis points over
the quarter.
The Company’s office assets saw a fall in capital value of 9.9 per cent,
reflecting a 61 basis point movement in the sector’s equivalent yield. The
office sector continues to experience a structural shift in favour of prime
assets with strong underlying ESG credentials. The occupational market for
good quality stock remains robust, as illustrated by a number of accretive
leasing deals concluded within the quarter, including a reversionary lease to
Quaero Capital at 2-4 King Street, London, delivered at a substantial uplift
to the passing rent. A new lease was also completed with JZ International at
17A Curzon Street, London.
Share Price
As at 31 December 2022, the share price was 88.5 pence per share, which
represented a discount of 25.3 per cent to the NAV per share. The share price
total return for the quarter to 31 December 2022 was 11.9 per cent.
Cash and Borrowings
The Company had £54.8 million of available cash as at 31 December 2022. There
is a £260 million term loan in place with L&G which matures in December 2024.
The Company also has a £50 million term loan with Barclays, along with an
additional undrawn £50 million revolving credit facility. The Barclays
facility expires on 31 July 2023, with the option of a one-year extension. As
at 31 December 2022, the Company’s loan to value, net of cash (‘LTV’)
was 23.4 per cent.
Dividend
The Company continued to pay monthly property income distributions at a rate
of 0.4 pence per share during the quarter.
Portfolio Analysis – Sector Breakdown
Portfolio Value £m % of portfolio as at 31 December 2022 % capital value shift (including purchases and CAPEX)
Offices 346.9 31.6 -8.6
West End 87.0 7.9 -3.1
South East 53.7 4.9 -17.8
South West 25.5 2.3 -15.1
Rest of UK 162.2 14.8 -7.4
City 18.5 1.7 -5.9
Retail 190.4 17.4 0.8
West End 163.2 14.9 2.0
South East 27.2 2.5 -5.6
Industrial 317.4 28.9 -20.5
South East 50.2 4.6 -14.0
Rest of UK 267.2 24.3 -21.6
Retail Warehouse 127.5 11.6 -14.2
Alternatives 114.9 10.5 -11.8
Total Property Portfolio 1,097.1 100.0 -11.9
Portfolio Analysis – Geographic Breakdown
Market Value £m % of portfolio as at 31 December 2022
West End 302.1 27.5
South East 255.9 23.4
Midlands 234.0 21.3
North West 133.9 12.2
Scotland 127.2 11.6
South West 25.5 2.3
Rest of London 18.5 1.7
Total Property Portfolio 1,097.1 100.0
Top Ten Investments
Sector
Properties valued in excess of £200 million
London W1, St Christopher’s Place Estate * Mixed
Properties valued between £50 million and £70 million
Newbury, Newbury Retail Park Retail Warehouse
Solihull, Sears Retail Park Retail Warehouse
Properties valued between £40 million and £50 million
London SW19, Wimbledon Broadway ** Winchester, Burma Road Properties valued between £30 million and £40 million Chorley, Unit 6 and 8 Revolution Park Liverpool, Unit 1, G.Park Markham Vale, Orion 1 & 2 Manchester, 82 King Street Birmingham, Unit 8 Hams Hall Mixed Alternative Industrial Industrial Industrial Office Industrial
* Mixed use property of retail, office, food/beverage, and residential
space.
** Mixed use property of retail, food/beverage, and leisure space.
Summary Balance Sheet
£m Pence per share % of Net Assets
Property Portfolio 1,097.1 156.4 131.9
Adjustment for lease incentives (22.0) (3.2) (2.6)
Fair Value of Property Portfolio 1,075.1 153.2 129.3
Trade and other receivables 32.9 4.7 4.0
Cash and cash equivalents 54.8 7.8 6.6
Current Liabilities (19.9) (2.8) (2.4)
Total Assets (less current liabilities) 1,142.9 162.9 137.5
Non-current liabilities (2.1) (0.3) (0.3)
Interest-bearing loans (309.3) (44.1) (37.2)
Net Assets at 31 December 2022 831.5 118.5 100.0
The next quarterly valuation of the property portfolio will be conducted by
CBRE Limited during March 2023 and it is expected that the unaudited NAV per
share as at 31 March 2023 will be announced in April 2023.
Important information
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014. Upon the publication of this announcement via Regulatory
Information Service this inside information is now considered to be in the
public domain.
Enquiries:
Richard Kirby
CT REP AM plc
Tel: 0207 499 2244
Innes Urquhart
Winterflood Securities Limited
Tel: 0203 100 0265
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